Turner v Lorenzo Shipping Corporation

1. TURNER
V
LORENZO
SHIPPING CORP.
G.R. No. 157479
November 24, 2010
Recited by:
Rey, Stephanie Pearl D.
201980144

2. PARTIES:
2
PHILIP TURNER AND ELNORA TURNER
PETITIONERS
VS
LORENZO SHIPPING CORPORATION
RESPONDENT

3. FACTS:
• The petitioners held a significant amount of shares of
stock of the respondent. The respondent decided to
amend its articles of incorporation to remove the
stockholders’ pre-emptive rights to newly issued shares
of stock. Feeling that the corporate move would be
prejudicial to their interest as stockholders, the
petitioners voted against the amendment and
demanded payment of their shares at the rate based on
the book value of the shares (₱2.276/share).

4. FACTS:
• The respondent found the fair value of the shares
demanded by the petitioners unacceptable. It insisted
that the market value on the date before the action to
remove the pre-emptive right was taken should be the
value (₱0.41/share), and that the payment could be made
only if the respondent had unrestricted retained earnings
in its books to cover the value of the shares, which was
not the case.

5. FACTS:
• The disagreement on the valuation of the shares led the
parties to constitute an appraisal committee, each of
them nominating a representative, who together then
nominated the third member who would be chairman of
the appraisal committee. Thus, the appraisal committee
came to be made up of 1 petitioners’ nominee; 1
respondent’s nominee; and someone from the Asian
Appraisal Company, Inc., the third member/chairman.
• Appraisal Committee: reported its valuation
( ₱2.54/share)

6. FACTS:
• Petitioners demanded payment based on the valuation of
the appraisal committee, plus 2%/month penalty from the
date of their original demand for payment, as well as the
reimbursement of the amounts advanced as professional
fees to the appraisers.

7. FACTS:
• Respondent refused the petitioners’ demand,
explaining that pursuant to the Corporation Code, the
dissenting stockholders exercising their appraisal
rights could be paid only when the corporation had
unrestricted retained earnings to cover the fair value
of the shares, but that it had no retained earnings at
the time of the petitioners’ demand, as borne out by
its Financial Statements for Fiscal Year 1999 showing a
deficit therein.
• Upon the respondent’s refusal to pay, the petitioners
sued the respondent for collection and damages in
the RTC

8. LOWER COURT RULINGS
RTC: Held that the law does not say that the unrestricted
retained earnings must exist at the time of the demand. Even
if there are no retained earnings at the time the demand is
made if there are retained earnings later, the fair value of
such stocks must be paid. The only restriction is that there
must be sufficient funds to cover the creditors after the
dissenting stockholder is paid.
CA: Reversed RTC. Held that it is clear from the foregoing
that the Turners’ appraisal right is subject to the legal
condition that no payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained
earnings in its books to cover such payment.
8

9. ISSUE:
9
WHETHER OR NOT THE PHILIP AND ELNORA
TURNER HAS THE RIGHT TO DEMAND FMV OF
THEIR SHARE?

10. SUPREME COURT
RULING

11. RULING
11
• No payment shall be made to any dissenting stockholder unless the
corporation has unrestricted retained earnings in its books to cover the
payment.
• Under the TRUST FUND DOCTRINE – the capital stock, property, and other
assets of a corporation are regarded as equity in trust for the payment of
corporate creditors, who are preferred in the distribution of corporate
assets. The creditors of a corporation have the right to assume that the
board of directors will not use the assets of the corporation to purchase its
own stock for as long as the corporation has outstanding debts and
liabilities.
Hence, any disposition of corporate funds to
the prejudice of creditors is null and void.

12. Petitioners’ cause of action was premature.
The respondent had indisputably no unrestricted retained earnings in
its books at the time the petitioners commenced its action proved
that the respondent’s legal obligation to pay the value of the
petitioners’ shares did not yet arise. Neither did the subsequent
existence of unrestricted retained earnings after the filing of the
complaint cure the lack of cause of action. The petitioners’ right of
action could only spring from an existing cause of action. Thus, a
complaint whose cause of action has not yet accrued cannot be
cured by an amended or supplemental pleading alleging the
existence or accrual of a cause of action during the pendency of the
action.

13. SUPREME COURT RULING
WHEREFORE, the petition for review on certiorari is
denied for lack of merit.
We affirm the decision promulgated by the Regional
Trial Court of Manila, et al.
Costs of suit to be paid by the petitioners.
SO ORDERED.

14. THANK YOU!
Turner v Lorenzo Shipping Corp.
G.R. No. 157479
November 24, 2010
Recited by:
Rey, Stephanie Pearl D.
201980144